Beware the nimble middlemen, warns Capgemini head of digital experience

Dorus van den Biezenbos, head of digital customer experience at Capgemini, speaks to Peter Roper about digital disruptive intermediaries, a not-new phenomenon to which incumbents are still slow to respond.

The internet as a social and commercial force – mobile internet most notably –has given rise to new intermediaries, unchained from the legacy overheads of physical distribution.

The dotcom book saw pure-play ecommerce companies, online stores and new media. The Web 2.0 era and its collective and converging channels and trends, of apps and audience participation en masse, has middlemen everywhere quaking in their boots.

Retail, finance, transport, labour… it’s the circumventing of central pieces of the value chain, the ‘digitally disruptive intermediaries’, that are so often spoken about when we talk about disruption. It’s important to note that digital intermediaries aren’t the only topic under the ‘disruption’ umbrella, but have emerged as the default talking point thanks to prominent and public examples, starting at the turn of the century with iTunes and continuing with present day poster children Airbnb and Uber.

A recent study by Capgemini and the University of Sydney Business School set out to identify examples of digital disruptive intermediaries, eventually clustering them into eight archetypes [see the eight archetypes of digital disruptive intermediaries, below].

To be most insightful for incumbent organisations, the study did this by first looking at key functions that disruptive intermediaries provide, creating a checklist for each archetype that can be compared or contrasted with other organisations and offering suggested areas of response.

Marketing: What are the main sectors you see most at risk of disruption by digital intermediaries?

Dorus van den Biezenbos: The retail sector is pretty ahead with this. The way we see it obviously is that when you think, for example, of the aggregators, the promoters, they’re definitely already there when it comes to the intermediaries for the retail sector. That is definitely an area to think about and there are clients of ours who will need to think about how they are going to respond to that and what that means for them.

If you think about financial services, there are the large banks in Australia, but there is also the insurance sector, which is a bit of a laggard when it comes to digital transformation. We’ll need to think about what the role is going to be of the independent financial advisers, for example, going forward. How much are they going to leverage that model, and how much of it is going to be happening directly between the customer and the insurance company?

Those are two examples where we are working with clients and advising them on how to deal with the disruption.

Is it about how to work with incoming disruptors or is it about how incumbents combat them with innovative services?

It depends on their own digital strategy. It often starts within digital strategy about what you want to be and how you want to respond, and if you want to leverage partnerships, for example. From there, defi ne what it is that the customers are looking for and then make choices, because you can’t do everything. If you do, you’ll see they start all these different initiatives around digital, but none of them really succeed and they don’t get the full benefits of them.

It’s about defining the digital strategy, what you want to achieve from digital, what it is that your customers are expecting from you across the life cycle, and then prioritising that across the organisation.

In some cases, it is about looking at working with partners to leverage insights, for example, and translating that into information to use going forward.

One of the points made in the report is that digital disruption is ‘notoriously hard to spot’. What makes it so?

The key problem is that people see that things are changing around them, but very often they don’t know how to apply that change to their own business models or to their own operations because they’re so used to running the business as they do. They don’t spend time thinking about how they could apply that innovation or that new technology to their own businesses. They just look at it as if to say, ‘Oh yeah, that is happening, but let’s talk about it another time.’ Then it doesn’t get the right attention.

So it is difficult to spot the opportunity and then, once it has been spotted, it is difficult to translate it into a new model or a new initiative for an organisation because they are so used to doing business the way they do, or because the systems don’t allow them to change accordingly.

For example, a lot of these disruptive intermediaries look at information rather than having the assets. Whereas a lot of companies have the assets and that brings a lot of complexity with it. The digital disruptive intermediary can just look at the information that comes out of that, just the data it provides, and repackage that data into an offering for clients.

If digital intermediaries can’t exist without the original supplier, and the supplier is the incumbent and new intermediaries are competing against the incumbent, how does that play out?

The interesting thing is that I think there’s a whole business model change. One of the examples has been there for many years: iTunes completely changed the market and the way in which we consume music.

If you think about the past, where you would go out and browse for a CD, and before that cassettes, that has completely changed and now the technology has enabled you not only to play the music at your home, but also take it with you wherever you want and get recommendations about ‘if you like this type of music, then you may also like this’. It’s completely changed the way you interact with the category. And then it’s made in a way that the CDs and the cassettes are obsolete.

The endgame of that is that companies that provide services or that provide products in the music industry will have to think about how they’re going to offer that in a different way because if they don’t change, such as Kodak, for example, in the photo industry, then in a few years’ time, they will no longer exist because they have missed the boat.

The endgame is about adapting and making sure that you stay relevant based on the customers’ needs and technological advancements that are disrupting.

Kodak is a really interesting example, because it was one of the early inventors of digital cameras and did have a reasonably profitable digital camera business – what were the other factors in that story?

I’m not close enough to it [to comment]. I mean, I have seen how the story ends, but in terms of the critical success factors I am not sure. I could relate another example of Philips, which used to have a much better product than the VHS, but it never made it because of marketing.

It may have had a superior product, but because better companies jumped on the bandwagon earlier or were successful from a marketing perspective, they were the ones that actually won in that game.

If I extrapolate that to, for example, Netflix, which just introduced its services in Australia. There are a number of competitors, but the real challenge for these parties is to gain market share as quickly as possible, because once the consumer is used to using Presto or Stan or Netflix, it is quite unlikely that they are going to change if they’re happy with the service.

In my case, I did try Netflix because I was interested in it and I thought, well, based on the fact that it’s global and has the huge following of about 50 million customers already, I was expecting a very broad range videos, of movies, of TV shows. But actually I was quite disappointed with that. As a result, I will be looking at other providers to see whether they’ve got a broader range of movies etc. That could be a reason for people to swap, because if I had been happy with what they provided, I probably would stay with them.

That suggests that the area of competitiveness for these new players is in information and experience, as opposed to actual assets.

Yes, they are a content hub, if you like, if you put it into the archetypes [see the eight archetypes of digital disruptive intermediaries, below]. It’s about ease and access of use, but the diff erentiating factor is also about the product. Some people may be paying $70 a month for Foxtel because they love the sports. They may not go to Netflix because Netflix is not off ering that live sports channel, for example, and therefore it’s a different proposition, but it is providing an answer to the need for people who like to watch movies and use Foxtel only for that. It provides a good alternative at a cheaper price.

How does a business get the confidence to invest time and money and risk into initiatives? Is it always a matter of just experimenting small scale and seeing what works?

It probably comes from the sense of urgency because in some industries they might see how the world is changing around them. Think about the retail sector: there is a sense of urgency that you have to be available online 24/7. You have to have an effective delivery model of groceries because otherwise someone else will step into that space and therefore you need to think about it and invest in it.

It goes beyond the business case, per se. It is really looking at where the market is going and therefore needing to step into that space. Start in a small area, one department, one product, one channel. And, from there, extrapolate across the organisation.

In other cases, it is sometimes more a burning desire rather than a burning platform. For example, the insurance sector. We’re working with this life insurance company and they really want to be at the forefront of the digital transformation and they say that would be our differentiating factor going forward and therefore we would be the first movement. We can shape the market by doing this. It will be ahead the competition. So it’s more of the desire and therefore they will invest in it because they’re passionate about it.

Is first mover advantage the right way to go, given that to be at the forefront requires constant investment and upgrades?

It does, so therefore it costs a lot of money. However, I do believe that there are advantages to that because you can leverage it in your marketing. If you think about CBA (Commonwealth Bank) in Australia, they’re obviously quite good at sharing in the press the different innovation initiatives that they are launching.

Think about Facebook banking. Think about ‘Albert’, that terminal for payments they launched. They’ve got all their diff erent initiatives that they launched from an innovation perspective and that puts the brand at the forefront from a perception perspective. And the other banks are trying to catch up on that.

We also work with MIT (Massachusetts Institute of Technology) and this is the fourth year of our global partnership with them. With them we look at the ‘what’ and the ‘how’ when you think of digital transformation.

The ‘how’ is all about the vision you have, the engagement with your colleagues, the alignment between business IT and the governance that you put around it.

With the ‘how’ question – which is what most companies are struggling with – you create the initial benefits, because what we see in the companies that really succeed at this is they have revenue results of 26 percent higher than their peers and the profitability line is nine percent higher.

The reason is they do it in a coordinated way. So rather than launching all kinds of initiatives that are unstructured or uncoordinated, you need to think about the ‘how’ and the governance around it, so that you actually get the full benefits of it.

What are the main things that get in the way? Is it cultural?

There are a number of inhibitors there, but they key one if you think about the ‘how’, is understanding what to do first, which can result in management inertia.

They feel disruption around them; they see all the possibilities. ‘What do we do first? How does it fi t into our strategy? How does it fi t with other projects?’ That results in indecisiveness.

You are very right in terms of the culture, because eventually it is the people driving the digital agenda. And what we see as a critical success factor is that it is driven from the top. Where we have seen digital transformation work is where the CEO was personally involved and really driving the initiatives and leading by example. If the CEO doesn’t show commitment, then it is doomed to fail, if I may say so.

That is really an important part of leading by example and inspiring colleagues. If you think about collaboration internally through new digital means, such as Yammer, for example, if the CEO posts information or communication on a new platform like Yammer, you can imagine that people will start following or start reading and will start posting their own comments.

If that person does not do it, well, you may hope that other people will stand up, but the CEO or the management team of an organisation will definitely have an impact in terms of driving that type of behaviour.

The eight archetypes of digital disruptive intermediaries

Digital stores aggregate supplier offers in comprehensive stores to provide online one-stop shops in order to own the customer experience.

Content hubs disrupt the media industry and change the ways in which consumers interact with media services in an on-demand way.

Sharing hubs enable the accumulation of usergenerated content, over time threatening and competing with traditional mass media for consumer attention.

Promoters focus on price. They introduce price transparency and take on the role of channelling price-conscious customers to the best offerings.

Aggregators allow customers to easily compare information-rich products in fragmented markets that are often deliberately opaque.

Discriminators are built around customer opinions and reviews; they disrupt established ways of defining quality, particularly in service markets.

Crowdsourcers gather customers to source services or suppliers via digital platforms in a way that’s straightforward, levelling the playing field between large and small suppliers.

Matchers reorganise the allocation of demand and supply, in particular in formerly monopolised markets, disrupting established allocation mechanisms.

Definitions

Digital disruption

Refers to changes enabled by digital technologies that occur at a pace and magnitude that disrupt established ways of creating value within or across markets, social interactions and, more generally, our understanding and thinking.

Digital disruptive intermediaries

Disruptive intermediation occurs when a third party enters an industry and provides new digital services that challenge established business models and change the way in which value is created or distributed

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